Gov. Lee's budget calls for $1.6B business tax cut: What to know about the proposal
Tennessee Gov. Bill Lee revealed his top spending priority in his 2024 budget plan on Monday: more than $1.6 billion in tax breaks for businesses and corporations, but no tax relief for consumers.
The governor outlined his $52.6 billion state budget proposal to lawmakers during his annual State of the State address on Monday evening. House and Senate members will consider the budget legislation over the coming months.
Restructuring how the state charges franchise taxes to businesses and corporations and refunding businesses who paid franchise taxes based on property taxes over the last three years is Lee’s single biggest-ticket budget item.
According to budget documents, the franchise tax simplification is projected to cost the state $410 million in recurring funds each year, while the refunds will cost $1.2 billion immediately in one-time costs (more than most state agencies’ entire budget).
“This extraordinary expense is a major budget item as you can imagine,” Finance and Administration Commissioner Jim Bryson told reporters Monday. “If we kind of put it behind us and we don't have to worry about it in future years … If we don't put it behind us, it could come back and be much, much more expensive in future years.”
The change was prompted by about 80 companies that have approached the state asking for a franchise tax refund, Bryson said. Lee has previously said that experts in Tennessee Attorney General Jonathan Skrmetti’s office and the Department of Revenue also advised the franchise tax change – but, the governor says, there is currently no threat of legal action to the state without the change.
Srkmetti has declined to publicly provide details to lawmakers of the legal necessity for the simplification.
But while Lee is backing a huge tax refund for corporations, his budget does not include any direct tax breaks for consumers: no holiday from the state’s 4% grocery tax like last year or 7% tax on diapers and formula is funded in his plan.
“We’re not proposing a grocery tax cut,” Lee told members of the Tennessee Dairy Producers Association last month, touting Tennessee as the lowest per-capita tax burden, in contrast to states that have income taxes. “We’re dealing primarily with the business tax cut.”
Here are more takeaways from Lee’s budget proposal:
$141.5M funding for school vouchers
As expected, Lee’s budget includes the price tag for his proposed Education Freedom Scholarships program: $141.5 million in new spending. The program would create 20,000 state-paid scholarships for students to attend private and religious schools. Half of those slots would be reserved during the first year for students whose families fall under 300% of the federal poverty level – about $90,000 per year for a family of four. The remaining 10,000 scholarships would be open to any student who qualifies, regardless of family income.
In later years, under the proposal, the program would expand to universal eligibility.
$261.3M new funding for public schools
K-12 education makes up the largest portion of spending in the state’s budget. The governor’s budget includes nearly $6.8 billion for public schools, nearly $2 billion more than funding for public education in 2020.
Public schools will receive a $261.3 million increase under the Tennessee Investment in Student Achievement growth model. That includes funding to bring starting pay for teachers to a minimum of $50,000 per year by 2027. TISA is the state's new K-12 funding formula. Other increases include:
$30.7 million for summer learning programs
$15 million for charter schools facilities
$8 million more for school based behavioral health liaisons
Rural health initiatives
In addition to $273.7 million in increased funding for TennCare, the state's Medicade program, the governor’s budget includes:
$17 million toward stabilizing nursing homes
$18 million to extend the state’s dental services pilot program
$15 million for behavioral health hospitals
$10 million for children’s hospital infrastructure grants
It also sets aside over $80 million for new rural health initiatives recommended by the governor’s Rural Health Care TaskForce, including:
$50 million Rural Health Resiliency grants to improve access to healthcare in rural areas
$15.8 million for rural health pathways workforce development program
$6.4 million for rural health apprenticeships workforce development program
$5.4 million for rural health training workforce development program
Farmland conservation and highway beautification
Lee is proposing nearly $100 million in funding for conservation, including $71 million to acquire land that the state has identified for potential new state parks and state forests, Bryson said. The funding would establish a Heritage Conservation Trust to maintain and preserve those lands for future generations.
Lee is also proposing to establish a $25 million Farmland Conservation Fund to preserve farmland in conservation easements. Tennessee losing farmland at the second highest rate of any state in the U.S., Bryson said.
Lee’s budget also includes:
$20 million Blueways Trail Development to build waterway access points and infrastructure
$10 million toward Bill Dance Signature Lakes Fishing Trail to establish Tennessee as a national fishing destination
$3 million toward accessibility improvements such as accessible boat ramps, adult changing tables, wheelchair ramps
$5 million for highway beautification projects
A ‘constrained’ budget
Lee’s proposed budget is $9.9 billion smaller than last year, which Bryson describes as “significantly more constrained,” due to flattening revenue and federal pandemic relief drying up.
“Our growth has flattened, tax revenues have flattened, federal funds are dwindling and we are facing significant financial challenges,” Bryson said.
But the budget is still almost 50% larger than four years ago, he said, touting the state’s conservative financial management, building reserves and decreasing debt.
“We’ve cut some things out that need to be cut out, but we haven’t had to make any deep cuts because of our budget situation,” Bryson said.
Overall, the budget consists of $25.4 billion in state funds, $19.8 billion in federal funds, and $7.4 billion from other sources.
Vivian Jones covers state politics and government for The Tennessean. Reach her at vjones@tennessean.com.
This article originally appeared on Nashville Tennessean: Tennessee Gov. Bill Lee's budget calls for $1.6B business tax cut
